Question
During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $30,000 a year. She has asked
During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $30,000 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. The vineyard will bear no grapes for the first 5 years (15). In the next 5 years (610), Stacy estimates that the vines will bear grapes that can be sold for $60,000 each year. For the next 20 years (1130), she expects the harvest will provide annual revenues of $110,000. But during the last 10 years (3140) of the vineyards life, she estimates that revenues will decline to $80,000 per year. During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $9,000; during the years of production, 640, these costs will rise to $12,000 per year. The relevant market rate of interest for the entire period is 6%. Assume that all receipts and payments are made at the end of each year. Click here to view factor tables [D]ick Button has offered to buy Stacys vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Minimum price at which Stacy should accept the business.
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